Need an effective lease

So you bought a flat, under the impression that all leases were much the same, but for upholding the various leaseholders and freeholders' rights and responsibilities life can become rather complex. Arma (the Association of Residential Managing Agents) reports that over 2/5ths of flats self-manage. It is primarily small blocks that opt for the flexibility and cost-effectiveness of self-management and in our experience, the leases of small blocks can be among the least well drafted. Remember, a solicitor will draft a lease that will probably last 99 or more years. It is the managing agents whose responsibility is to get the covenants of the various parties enforced and who must collect money to maintain the block.

In this context, the 8 most common clauses that cause problems are:

1. Service charge clause a change in wording is needed to enable collection in advance. i.e., to remove a situation where service charges have to be demanded with supporting vouchers after expenditure is incurred (perhaps on demand, at the end of a quarter/year).
2. insurance clause a change in wording is needed to enable flats to be collectively insured for buildings insurance risks rather than 9 flats with 9 buildings insurance policies with each flat required to buy a defective title indemnity policy every time a flat sells.
3. an interest clause - a change in wording is needed to give an incentive for arrears to be paid, i.e., it could be useful to write a penalty into the lease.
4. a reserve fund clause a change in wording is needed to enable provision for "big works" and this could become part of permitted service charge expenditure to be collected in advance.
5. service charge dates a change in wording is needed to specify collection dates for service charges.
6. uncap advance contributions A change in wording is needed perhaps to increase the extent of advance maintenance contributions, for example, so they are not capped at a certain level, i.e., the ground rent.
7. For individual flats liabilities a change in wording is needed to re-state service charge percentages or alter who contributes to what. For example, there needs to be a provision to prevent a flat with a private front door from paying for the redecoration of the internal communal entrance.
8. They need allowable service charge expenditure a change in wording to enable the fees of a managing agent to be an allowable service charge expenditure item.

Numbers, 1, 4, and 6 above probably did not matter in bygone days when freeholders absorbed shortfalls and pre-funded expenditures until the year's end. With more and more lessees collectively owning their freeholds this does currently present a problem, as lessees rarely see themselves as investors or have the ability without legal protection to pre-fund service charge expenditure on a basis that is not specified in the lease. Gaining an effective lease that will enable you to be in a position where arrears can be enforced. You should be aware that, in the event of litigation, a court will ruthlessly apply the lease. It will reject any resolution formal or informal to pay a service charge or any variation of what is in the lease as not binding. Where there is 100% consensus to get leases effective, the tool used to vary a lease is called a "Deed of Variation".

Such a deed must:

1. be entered into by the mutual consent of both parties.
2. be registered with the Land Registry to then become binding on any lesser thereafter.

The deed substitutes an effective service charge clause with immediate effect. Where not everyone agrees, there are provisions to force changing the lease, brought about by Section 37 provisions of the Landlord & Tenant Act 1987. Specifically: if there are more than 8 flats, at least 75% must consent and not more than 10% oppose, if there are less than 9 leases, all but 1 party must consent. So in simple terms, it is best to start by educating the party who does not consent, to get him/her to consent. Otherwise, an application will need to be made to the Leasehold Valuation Tribunal to enact Section 37.

Such an application can follow the written track, so it is not overly expensive. Costs of getting an effective lease Leaseholder Support.co.uk promotes solutions for small blocks. For considerably less than a High Street Solicitor the Ringley Groups Leaseholders Support Service will execute a deed of variation. The Leaseholder Support.co.uk members rate is only £225 per lease to re-write one clause and £25 per clause thereafter. Land Registry registration costs are £40 + £20 disbursements.

For more information, see our website at www.leaseholdersupport.co.uk